There’s no need to rush on the new Federal Scholarship Tax Credit

Strong neighborhood schools are the foundation of strong communities, especially in our Gateway Cities. Strong schools reflect the assets each community has — its history, culture, and institutions — and they attract and incorporate a diverse array of students and families. Our Massachusetts cities need education policy that builds on community strengths and integrates students across socioeconomic and racial lines. Before embracing any major new policy, we should ask to what extent it will strengthen the public schools in our communities and help lift educational attainment for all students.  

The Federal Scholarship Tax Credit (FSTC) is a new federal policy set to begin on January 1, 2027. It offers a nonrefundable tax credit for individuals who donate money — up to $1,700 for individuals and $3,400 for married couples filing jointly — toward education scholarships. Although scholarships typically refer to vouchers that pay for private school tuition, these scholarships cover certain education-related expenses for K-12 public, private, or charter schools, such as tutoring, transportation, and technology.  

To qualify for these scholarships, a student’s family must earn no more than 300 percent of the area median income, a threshold so high that over 90 percent of children should qualify, according to the Department of the Treasury. Donors make contributions to state-approved scholarship-granting organizations (SGOs) that collect donations and distribute these scholarships to schools or districts to cover education expenses for families. In turn, donors receive a tax credit equal to 100 percent of their donation, if they have sufficient tax liability, making this tax credit appealing to middle-income families. 

The catch is that states must opt-in annually to benefit from these scholarships. So far, 31 states have chosen to participate in 2027, and mostly along partisan lines— 25 currently have Republican governors. As we approach the January 1 deadline for Governor Healey to decide, proponents and opponents are actively making their case.  

Critics of the FSTC claim this money is a scheme to privatize the public school system. They argue that this policy will disproportionately benefit wealthy families, who will target their donations toward private schools. Private schools, in turn, can use these scholarships to poach high-achieving students from public school districts, reducing public school enrollment, decreasing school funding, and increasing racial and socioeconomic segregation. Critics also point to states that have recently passed statewide vouchers—such as Arizona and Utah—to underscore how these policies lack proper oversight to prevent waste and abuse. 
 

Proponents, on the other hand, view this policy as a mechanism to provide low-wealth school districts with additional resources. Democrats for Education Reform, an advocacy organization in favor of the FSTC, estimated that if only 15 percent of qualifying Massachusetts tax filers participated and donated the full amount, these contributions would generate over $330 million of revenue, a portion of which could be directed to K-12 public schools. This additional revenue could cover expenses associated with several district and state priorities, such as Early College, high-dosage tutoring, and career and technical education. If school districts can dedicate funding to these evidence-based priorities, the argument goes, academic achievement will rise and, perhaps, bring more families back to the public school system, reversing recent enrollment declines.  

Moreover, public schools have one inherent advantage: a larger number of potential donors. Nine times as many students attend public schools as private schools in Massachusetts. Public schools would also seem to have an advantage in securing donations from taxpayers without school-aged children. This group represents 73 percent of households in Massachusetts, so they are by far the largest source of potential donations. But Gateway City leaders are right to worry that their schools will fall further behind because their residents may be less able to make donations than higher-income families in other cities and towns. 

While there is merit to arguments on both sides of this debate, no one can predict how this policy will affect students and families because the policy design is unique. There is no precedent for allowing private donations to fund a federal revenue stream that can apply to private, public, or charter schools. That is why even experts struggle to project who will participate, how much revenue will be raised, and how schools will spend this money. Yet the answers to these questions matter.  

Considering how uncertain the outcomes of this policy are, the best course of action is to not opt in this year. Let us learn how this policy plays out in other states before we decide whether and how to implement it here. If it accelerates public school enrollment declines or exacerbates educational inequities, we should not participate. If, however, this policy funnels money toward the K-12 schools and communities that need it most, then we should participate. Under the best-case scenario, waiting one more year gives the Commonwealth time to organize districts, parents, and civic leaders, and to build the necessary infrastructure to capitalize on this funding stream, infrastructure that private schools presumably have in place already.  

To be sure, creating public school infrastructure for these scholarships would require a substantial investment of time and resources. First, Massachusetts would have to convene leaders from education, philanthropy, and government to discuss how to create SGOs focused on Gateway Cities (and other lower-income school districts) that are eligible to receive donations and disburse scholarships. Second, given that this policy is new, there would have to be a campaign to educate taxpayers about this federal tax credit — specifically, what scholarships will cover, where to make these donations, and how to claim the federal tax credit — and to work with employers to facilitate donations through payroll deduction and federal tax withholding policies. Finally, schools would have to determine what expenses and students are eligible, a process complicated by limited federal guidance.  

The debate around this federal scholarship is contentious, like most education policy debates, with political coalitions forming along ideological lines. What we need to settle it is evidence of how this tax credit will impact schools and communities, but we will not have much actual evidence until next year. In the meantime, leaders in Massachusetts should begin to prepare and strategize about how to leverage this funding, if early results are promising.